Gas Crisis? Huh?

[CNF2002]

There was a story in our local paper last week about gas prices. In it, they had a photo of pizza delivery man filling up his SUV and a quote from him whining how much gas cost him and it sucks being a pizza driver with high gas prices and he had to sell his smaller car to buy the SUV because he and his wife just had a baby and needed 4 doors instead of 2.

Ya know, because the only cars built with 4 doors are SUV's. Idiot.

Cute. You deliver pizza, so a large portion of your salary is cut by gas, and you buy a gas-guzzling SUV to do it in. He shouldn't be whining about gas prices, he should be whining about his poor choices.

And actually most 4 door wagons get the same mileage as their sedan counterparts and have more interior cubic space than many SUVs (sans the Ford and GM monsters).

Believe it or not, I've read that 2 door cars (aside from Ferrari's and the like) actually have 4 seats inside and could fit 2 adults in front with a baby (in carseat of course) in back. Its true...I've seen it!

[MrGompers]

Canada our neighbor has started extracting oil from "oil sands" in the province of Alberta. Canada also has a new natural gas pipeline off the coast of Nova Scotia which is currently in operation. (not sure if its at full capacity tho) From what I've read Canada is exporting these two new resources to the US. Altho I don't know quantities. Yet the price of gas & oil continue to rise. Gasoline has risen at least 100% within the last 2 yrs and natural gas has risen at least 50% during the same time. Now wouldn't it make sense if you have more supply the demand would fall and so would the price ? Not to mention the lower transportation costs from Canada as opposed to getting it imported from the middle east or south america.

A little correction in the "facts":
Oil extracted from the oil sands costs a lot more to produce than traditional methods and is only truly viable at higher oil prices. Combine this with an extreme labour shortage (nope, I don't want to live in Fort McMurray either), and the tax that the Canadian govt collects ( not an issue in the middle east) and you have got more reasons for the higher prices. The fact that we keep putting in larger pipelines and the States can consume everything we put down them is another. It's supply and demand and at lower prices the demand can't be met....even at higher prices the demand can't be met...

I agree that it costs more to extract oil from the oil sands. The point that I'm really trying to make is oil & gas have an inelastic demand curve. (very few products have this & in effect the supplier can set the price)

Which basically means no matter what the price is of the product the demand remains the same. Considering the fact that the oil & gas industries are recording the highest profit margin percentages in corporate history is appalling. They could if they wanted to lower prices and reduce their profit margins to a more reasonable amount say 25%. The demand still remains the same. However, they chose not to.

The rise of oil & gas prices affects nearly every industry as well. And is a great indicator of a recession. Now all we need is for interest rates to rise as well and bang recession time. For proof see gas shortages of the 1970s & 1980s which was accompanied by rising interest rates.

This is far bigger than paying $10 more at the pump every week to fill up the tank. We are paying for this in far many more ways & don't even notice it.

[MrGompers]

Just don't get me started on the rx industry.

Ooohh, I work in the rx industry! What juicy tidbits do you have on us?

That would be best left for another thread. One thing I will say briefly the pharma industries as well as the oil & gas industries have some great people working for them. When I criticize them its not an indictment of all the people involved. Its mostly the people at the top who are to blame along with lobbyists & govt.

[flynrider]

Which basically means no matter what the price is of the product the demand remains the same. Considering the fact that the oil & gas industries are recording the highest profit margin percentages in corporate history is appalling. They could if they wanted to lower prices and reduce their profit margins to a more reasonable amount say 25%. The demand still remains the same. However, they chose not to.

Demand doesn't remain the same. The price of a gallon of gasoline at the pumps is directly related to worldwide demand vs. supply. If the oil companies could actually control the price of a gallon of gasoline, they would have done so when supply outstripped demand during the 12 yr. oil glut that ended a few years ago. 5 years ago, I could buy a gallon of gasoline for less than $1 and many smaller oil companies had to merge with others just to survive. Oil producers were in the red when a barrel of oil sold for $12. I didn't hear anyone suggesting that prices should be increased to help them out.

The price of a product regulates the demand. As was eventually seen in the 70s (with disasterous results for oil producers in the late 80s and 90s). When the price was high, capacity was increased so they could sell more product at those higher prices. When all that new (excess) capacity came online, prices fell into the basement.

What you're seeing now is the demand catching up to the oversupply that was built up in the 80s. In the last 12 years, the profit on a barrel of oil was not enough to support building any new supply infrastructure. Supply remained static and demand has increased dramatically. Particularly with the addition of new demand from developing asian countries.

Last year's experience following Katrina was a perfect example of supply and demand. When gasoline prices topped $3/gal, U.S. demand dropped almost 9% in the following month. This was the first reduction in U.S. demand in over a decade. Gasoline prices started to slide and by the end of the year, were well below their pre-Katrina prices. Since then, demand has gone right back up where it was, so the price at the pump shouldn't be a surprise.

We, the consumers, are the only ones that can really control the price at the pump. If we keep increasing our demand, the price will just keep going up. An artificial reduction of the price at the pumps, will only result in the gas shortages and lines the pumps that we saw the last time gasoline was priced artificially low.

[ZooTech]

Oil & Gas companies are recording the biggest profits in corporate history. If I remember correctly, ExxonMobil had a profit of 55% in 2004. That is unheard of in any industry. ExxonMobil surpased Walmart in total sales in 2004 (maybe 2005 also) making them the biggest company in terms of sales on the planet.

Where on earth do you come up with these numbers???

ExxonMobil makes roughly 6.8 cents per gallon of gasoline in profits. That's less than the national average, and far less than banks, fast food, retail, and most other industries. People like to go after oil companies because the numbers are huge, forgetting that the company itself is huge! If you want the price of gas to go down, ask Congress what they're doing with the $.70 per gallon they take in taxes. While gas prices have risen 60% since the 70's, the average salary for a congressman has increased almost 300%!

It's all about perspective, folks. It's easy to go after the big guy and ignore the truth of the matter.

"...in 2004 Exxon Mobil earned more money -- $25.33 billion -- than any other company on the Fortune 500 list of largest corporations. But by another measure of profitability, gross profit margin, it ranked No. 127.

Jay Taparia, a lecturer in finance at the University of Illinois at Chicago and an expert on interpreting financial statements, said a quarterly profit or loss can only be judged in context, given the history of the company and its long-term prospects.

"People who are freaking out about Exxon's record profit are the same people who were freaking out about AOL Time Warner's record losses" of $98.2 billion in 2002, he said. "One quarter's net income or loss doesn't mean anything."

A $9.9 billion quarterly profit is mostly a function of Exxon Mobil's size. It had sales of $100 billion this quarter, more than any other U.S. company. At its current rate of growth, Exxon Mobil will be the biggest U.S. corporation this year by revenue, bigger than Wal-Mart Stores Inc., which had $288.19 billion in revenue last year. Generally, the bigger the company, the bigger the bottom line.

Even so, many companies smaller than Exxon Mobil "earn" more, depending on what measure is used.

Most financial institutions, such as commercial banks, are routinely more profitable than Exxon Mobil was in its third quarter. For example, Exxon Mobil's gross margin of 9.8 cents of profit for every dollar of revenue pales in comparison to Citigroup Inc.'s 15.7 cents in 2004. By percentage of total revenue, banking is consistently the most profitable industry in America, followed closely by the drug industry.

Altria Group, the maker of Marlboro and other cigarettes, made 22 cents for every dollar of revenue in 2004, and rx company Merck made 25.3 cents for every dollar of revenue in 2004.

By other measures, such as profit per employee, return on invested capital and free cash flow, Exxon Mobil is nowhere near a standout.

Oil industry analysts yesterday also pointed out that while times are good for oil companies, one of the reasons is the huge American demand for gas at a time when supply is constrained. And the cost of extracting and refining oil in the coming years is only going to increase, requiring hundreds of billions of dollars of investment. Energy research firm John S. Herold Inc. last month predicted that despite short-term increases in profits, higher costs will probably make many U.S. oil companies less profitable in the next five years, even as their revenue grows rapidly."

[MrGompers]

Oil & Gas companies are recording the biggest profits in corporate history. If I remember correctly, ExxonMobil had a profit of 55% in 2004. That is unheard of in any industry. ExxonMobil surpased Walmart in total sales in 2004 (maybe 2005 also) making them the biggest company in terms of sales on the planet.

Where on earth do you come up with these numbers???

ExxonMobil makes roughly 6.8 cents per gallon of gasoline in profits. That's less than the national average, and far less than banks, fast food, retail, and most other industries. People like to go after oil companies because the numbers are huge, forgetting that the company itself is huge! If you want the price of gas to go down, ask Congress what they're doing with the $.70 per gallon they take in taxes. While gas prices have risen 60% since the 70's, the average salary for a congressman has increased almost 300%!

It's all about perspective, folks. It's easy to go after the big guy and ignore the truth of the matter.

Ok you got me on that one. It should have read "US oil Companies that have reported 4th quarter earnings for 2005 have seen an average of 48% rise in earnings, excluding extraordinary items in the period"

Source

http://money.cnn.com/2006/01/30/news/co ... xon_earns/

This source also confirms that exxonmobil has surpassed walmart in terms of sales and is the biggest company on the planet in terms of sales.

[ZooTech]

This source also confirms that exxonmobil has surpassed walmart in terms of sales and is the biggest company on the planet in terms of sales.

How is that even ammunition for one side or another? Which do you visit more often, a gas station or Wal-Mart (and don't say, "Wal-mart's gas station!). Exxon supplies oil to more countries than Wal-Mart supplies mullet cream to. I would expect their bottom line to be a bit bigger as a result.

[oldnslo]

While big oil is routinely dragged over the coals for making too much money, this article does put it into perspective. Profit margins of 9.8% can hardly be considered excessive, if true. Banking makes more, probably due to usurious interest rates and a multitude of fees and penalties. I'm glad not to be using credit cards to live, like many people do just to get from month to month. Big pharma seems like a pretty profitable business--I've seen so-called reports of what many drugs acually cost vs. their selling prices in pharmacies. I wonder who makes all the money on one of my wife's inhalers that has a retail of $220 a month? With good insurance here in the US, I pay half that, the same as if I bought it in Canada. The latest development, however, for those US citizens who have been ordering drugs from Canada, , US Customs is intercepting drug shipments, so seniors primarily waste their money buying from Canadian pharmacies and still don't get their drugs. The FDA says it's "for our safety." Thank you, FDA and George Bush. If Canada can sell it for $110 US, then it should cost the same in the US, even without insurance. Our FDA permits pharma to rape us without so much as a handshake. People in the US pay far more for drugs than any other country in the world.
OK, enough ranting--it's still no fun to pay what we have to at the pump. We don't go anywhere we don't have to, and if possible, I use the bike.
When does the revolution start? This country suks more every day.

[MrGompers]

Which basically means no matter what the price is of the product the demand remains the same. Considering the fact that the oil & gas industries are recording the highest profit margin percentages in corporate history is appalling. They could if they wanted to lower prices and reduce their profit margins to a more reasonable amount say 25%. The demand still remains the same. However, they chose not to.

Demand doesn't remain the same. The price of a gallon of gasoline at the pumps is directly related to worldwide demand vs. supply. If the oil companies could actually control the price of a gallon of gasoline, they would have done so when supply outstripped demand during the 12 yr. oil glut that ended a few years ago. 5 years ago, I could buy a gallon of gasoline for less than $1 and many smaller oil companies had to merge with others just to survive. Oil producers were in the red when a barrel of oil sold for $12. I didn't hear anyone suggesting that prices should be increased to help them out.

Demand may fluctuate slightly but in the oil & gas industry that doesn't affect price. As I said earlier oil & gas is one of the few products that have an inelastic demand curve. If you have taken an economics class you would understand how this works. I'm willing to bet three coconuts that if everyone tomorrow in the USA said "We are not buying gasoline for the next 7 days" the price won't drop one cent.
Furthermore, the price of middle eastern oil is illegally controlled by OPEC. Their decisions to increase/decrease production have an effect on the whole worldwide supply.

The price of a product regulates the demand. As was eventually seen in the 70s (with disasterous results for oil producers in the late 80s and 90s). When the price was high, capacity was increased so they could sell more product at those higher prices. When all that new (excess) capacity came online, prices fell into the basement.

Price of a product can regulate demand. However, not in the case of a product with an inelastic demand curve.
Again I would refer you to the definition of inelastic demand.

A dictionary definition "Inelastic demand: demand which is not greatly affected by a change in the price of the product".

Wikipedia with some illustrations & a mathematical proof.

http://en.wikipedia.org/wiki/Price_elas ... definition


As a side note if you are trying to say that oil & gas do not follow an inelastic demand curve then your assumption of price regulating demand would be true. However, I can assure you that oil & gas follows an inelastic demand curve. My economics prof 10 yrs ago used oil & gas as an example. I don't see why it would've changed since that time.

[MrGompers]

This source also confirms that exxonmobil has surpassed walmart in terms of sales and is the biggest company on the planet in terms of sales.

How is that even ammunition for one side or another? Which do you visit more often, a gas station or Wal-Mart (and don't say, "Wal-mart's gas station!). Exxon supplies oil to more countries than Wal-Mart supplies mullet cream to. I would expect their bottom line to be a bit bigger as a result.

Thanks for reminding me I'm out of mullet cream. I personally don't shop at Walmart so, I visit the gas station more often.

Being the worldwide leader is sales is ammo. Now this is gross sales we are comparing. If ExxonMobil wasn't the leader 3 yrs ago & it is now, but the demand for oil & gas remained the same during the same period someone is getting raped.

Here's a good source of statistics regarding oil & gas imports/exports, demand, and production.

http://www.eia.doe.gov/

If you can't sleep some nite check it out and make your own conclusions.
It will also put you to sleep btw.